Two interviews with András Schiffer, chairman of LMP

LMP's election program is very, very long: 228 pages all told. Considering that I downloaded it only a couple of hours ago I can't give a blow-by-blow analysis of the document. However, now that LMP has done quite well in gathering endorsements and can have a countrywide list, András Schiffer, the party's candidate for prime minister, is the man of the hour. I have at my disposal the texts of two interviews, both quite long and detailed. The first took place on March 25 on MTV with Antónia Mészáros and the second on March 26 on György Bolgár's popular program "Let's talk it over" on Klub Rádió. I might mention that all of Bolgár's interviews are transcribed and available on www.galamus.hu.

My overall impression is that in some respects LMP's program strongly resembles the proposals of Fidesz. That is, the little we know about Viktor Orbán's ideas. This is certainly true about the party's plans for Hungarian agriculture, pensions, and healthcare. Here and there I detect the influence of Péter Róna, formerly a New York banker, especially when it comes to the party's negative attitude toward multinational corporations and its views on agriculture as one of the cornerstones of the future Hungarian economy. Since I disagree with Róna's solutions it's no wonder that I don't sympathize with LMP's program either.

My suspicion is that the relative success of LMP lies in its name. "Politics could be different" sounds enticing to people who are fed up with the political wrangling between Fidesz and MSZP and who long for a party that promises an entirely different political culture. Yet Antónia Mészáros of MTV rightly pointed out that it is odd to see a civic organization that doesn't know the word compromise when it comes to environmental issues enter politics, which is the art of compromise. Or at least it should be. Although Schiffer refused to admit that LMP is a "protest party," he called politics in Hungary no more than "the privilege of financial groups and half-criminal elements." That's quite an opening salvo!

LMP has been fairly consistently anti-MDF; they were especially virulent in their attack on Lajos Bokros and MDF's negotiations with the remnants of SZDSZ. As Schiffer said, "We don't want bankrupt, used-up politicians to sail into parliament on a lifeboat." It's hard to tell which Schiffer hates more, the liberals or Ibolya Dávid's MDF. And what does Schiffer think of Bokros? "An economist with an expiration date."

So, what are some of their ideas? Mészáros started with the question of pensions and inquired whether the party would nationalize private pension funds. The answer was no, but they would install an effective supervisory body over them. However, when György Bolgár asked him about changes in the current pension policy, Schaffer admitted that they would like to see the introduction of the Swedish model with some modification. The modification they propose is in fact no modification whatsoever compared to the pension policy currently in effect in Sweden.

As far as healthcare is concerned, again LMP is very close to the little we know about Fidesz's plans. Healthcare will remain completely public. No private investments are acceptable. However, he admitted that the healthcare system at the moment is in ruins. The remedy? The same as what Imre Pesti, Fidesz's healthcare expert, outlined: more money. To be precise, an extra 250 billion forints yearly, as we found out from the Bolgár interview. When Bolgár pressed Schiffer where this money would come from, he couldn't give a straight answer. First he suggested that healthcare payments should be changed to tax-like fees (presumably progressive), but when Bolgár inquired whether that would mean higher medical insurance premiums for people with higher incomes Schiffer changed his tune. No, this is not what he said. He thinks that there would be enough money in the budget to be able to give an extra 250 billion forints to the medical sector.

In addition to the 250 billion for healthcare, LMP would like to reshuffle the current budgetary allotments to the tune of 1,000 billion (and yes, at least as we multiply numbers in this country, we're now talking about a trillion). They are thinking in terms of a "green tax reform." Certain taxes would be lowered while they would raise or even introduce new ones that would be beneficial to the environment. For example, there would be a new kind of tax called "the carbon dioxide tax."  They would introduce higher excise taxes on gasoline or on truckers in order to divert traffic to the railroads. When the terrible situation at the MÁV came up in the conversation, Schiffer was very vague: all state-owned companies should be managed better. He mentioned that under ideal circumstances more people would use the railroad and therefore more people would buy tickets. Tickets?--asked Antónia Mészáros. But that's exactly the problem. Almost nobody buys tickets. Schiffer didn't take that bait. Why should his party stop all discounts currently in existence and the totally free rides for those over the age of 65? Because, according to him, "that is not the cause of MÁV's problems."

Bolgár was a bit more insistent when the question of the trillion forint reorganization came up. He wanted to know the details because his first impression was that "perhaps politics can be different, but one would need a lot more money than now." If this is just a question of a reorganization of the tax system, then this trillion must come from certain sectors that would be taxed at a higher rate. Schiffer first mentioned taxes on property, and therefore Bolgár thought of a real estate tax. But no, Schiffer offered some vague notion about "cataloguing valuable items." Bolgár at this point warned Schiffer that this is a very dangerous (and, I would add, utterly unworkable) proposition. Schiffer retreated to only cars and boats. However, we know the pitiful amounts of money that can come from the so-called luxury tax, and Bolgár pointed this out to him. Thus Schiffer retreated to the property tax in the normal sense of the word. Yes, it could be introduced later on. Would they extend this kind of tax to more people than in the last attempt rejected by the Constitutional Court? No, they wouldn't. But said Bolgár, this would never bring in a trillion forints. Perhaps not, but they would introduce higher taxes on the consumption of environmentally unfriendly products such as natural gas and gasoline. I think Bolgár was right when he remained unconvinced that a trillion forints could be squeezed out of these newly introduced green taxes.

LMP's attitude toward the multinationals is very negative even though Schiffer admits that their presence is necessary. But he blames them for Hungary's low level of employment. Again, Péter Róna is lurking in the background here; he tried to sell this preposterous idea to fellow economists in a round-table discussion about a week ago on ATV. He was trounced. According to Schiffer "the distorted accommodation to the demands of the multinationals in the long run is never a success story." Bolgár's Irish and Slovak examples didn't impress Schiffer. LMP, like MSZP and Fidesz, emphasizes the need for state support of middle-sized and small Hungarian companies who are not quite ready to be competitive in the world market while the Hungarian market is too small. LMP focuses on a "green turn." We're not talking here about high-tech solutions but about a return to agriculture. And here comes one of my standing objections to LMP's and Fidesz's solution to Hungary's employment problems.

The percentage of the actively employed between the ages of 16 and 60 is only 56%. Very low. The problem is especially acute among the undereducated and the unskilled. Somehow proponents of an economy based largely on agricultural production think that this would also solve the low employment rate. They think, wrongly in my opinion, that uneducated, unskilled people would be able to find work in agricultural activity that requires no expertise. It is true that some crops still have to be harvested by hand. But that's not exactly steady work. Most of agriculture is mechanized, vastly improving productivity and on balance increasing profits. So anybody who thinks that an emphasis on agriculture would go a long way toward solving the problem of about one million unemployed Hungarians knows nothing about the requirements of modern agriculture.

Moreover, I find the whole notion of going backwards to a more primitive economic organization outrageous, even if it were realistic. Every country is a de facto participant in the economic "race to the top," and no one will get to the top or even very far up the hill by looking backwards.

Comments

[Mark]

"Schiffer first mentioned taxes on property, and therefore Bolgár thought of a real estate tax. But no, Schiffer offered some vague notion about "cataloguing valuable items." Bolgár at this point warned Schiffer that this is a very dangerous (and, I would add, utterly unworkable) proposition."

I'm really not sure why it would be either dangerous or unworkable. This is the "wealth tax", and France, Switzerland and Norway all have ones on the statue book. In France, the right-wing Chirac government did abolish it briefly in 1986, but so unpopular was this step that it was reintroduced by the Socialists in 1988. I'm pretty sure that the existence of the cantonal wealth tax has not led to the abolition of capitalism in Swizterland. As for Norway there are both national and local wealth taxes. I'm really at a loss to understand what is wrong with this suggestion.

[Paul]

more taxes? i cant see how that will kickstart economic growth at all. cutting taxes and tackling corruption/wastage in the government sector seems more feasible to me.

[whoever]

A very enlightening post, and quite revealing. Essentially, it all comes down to whether politics should be entirely subservient to an orthodox, somewhat regressive economic standpoint, or whether a more balanced political economy is a possibility.

[Paul]

if lmp manages to take votes away from the other parties, but doesnt get enough to enter parliament, it will actually be a bonus to jobbik when votes become seats. i say this on the assumption that lmp is more likely to draw more voters from the mdf/mszp/fidesz camps than from the jobbik camp. im not sure myself if this assumption is entirely valid, but if so, it would explain why jobbik has thusfar refrained from specifically attacking the lmp. can anyone confirm/contradict this for me?

[Eva S. Balogh]

Somebody, unfortunately I no longer remember who it was, complained that I defend capitalism. Indeed. Democracy and capitalism go hand in hand. Freedom of enterprise, freedom to own land, real estate, business, whatever, is organic part of a democratic society.

[Öcsi]

Not everyone agrees that democracy and capitalism go hand in hand. The issue is not as clear cut and there is some controversy about the relationship between democracy and capitalism.

China is the third largest economy in the world and it's not a democracy.

Capitalism flourished under Franco in Spain and under Pinochet in Chile. Neither was a democracy.

There is an interesting article in "Foreign Policy" about this issue.
http://tinyurl.com/y9rjs7c

A writer for the Economist comments about the above article.
http://tinyurl.com/ye2mpfo

[Eva S. Balogh]

Öcsi: "China is the third largest economy in the world and it's not a democracy.

But a democracy cannot function without a free market economy.

[Mark]

Éva: “But a democracy cannot function without a free market economy."

While there is no case of a democracy existing without allowing private ownership and the market to play a role in the economy, Éva is perhaps forgetting the economic history of democratic western European countries which were often described as "mixed economies" right from the 1940s until the end of the 1980s.

In the UK postal services, gas, coal mining, electricity, railways, roads, steel, telecommunication, post, the national air carrier, water, and health services were all undertaken by state companies (health provision and postal services still are, and railways after having been completely privatised have been partially re-nationalized .... and that isn't to mention our banks).

The most extensive nationalizations in western Europe were carried out in Hungary's immediate western neighbour, Austria, in 1945 and 1947. Here the three largest banks, and large enterprises in coal and iron ore mining, iron and steel production, the machine industry, the chemical and oil industry, and electricity production and distribution were all owned by the state - right up to the 1980s. It was in this political economy that Austria's living standards caught up with north-west Europe's and under which Austrian democracy was consolidated.

In fact, I'd modify the conclusions. "Free market" capitalism is ultimately only compatible with dictatorships like Pinochet's or oligarchic liberalisms like those advocated by the likes of András Gerő. The problem is that once a political system is opened to popular political participation then elected representatives have to acede to demands to reforms of a social nature which protect those from the economic insecurities generated by the free play of the market. I'd argue the movement for health care reform in the United States, as for Medicare, Social Security, and New Deal measures to create jobs are/were all good examples of this. This is also why, in Europe, liberal parties are either on the political right (as in Belgium and the Netherlands), or are very firmly minority parties everywhere else.

[whoever]

Most liberals in Hungary seem to draw their inspiration from the mid-19th century... it's as if Lloyd George never happened.

Historically, I'd argue that ties between democratic socialism and liberalism have always existed - after all, Marx himself drew much of his paltry income from writing for liberal journals, and only later recanted on the idea of a radical alliance between bourgeoisie and proletariat. Similarly, many early socialist leaders entered politics on the left of liberal and reform movements. In the post-war period to which Mark refers, most western European liberal parties supported or even instigated Keynesian economics and nationalisation. After all, Keynes was a liberal.

You could argue that the liberal parties in Belgium, Netherlands and Poland, together with the new-look German FDP, are a new kind of party, bearing the same relationship with their past to that of New Labour, where the members stay the same old people, but the leaders now wear the best suits in town. Pick'n'mix lifestyle laissez-faire combined with orthodox economics.

So I would ask, by US/UK interpretation, are Eva and her friends actually liberals? In UK terms, it's more likely her political home would be among the kind of Conservatives who live in London; broad-minded perhaps, but ultimately believers in high finance as social and spiritual provider. But this is not intended to be derogatory, as many other Hungarian political labels seem to be similarly misplaced...

[Eva S. Balogh]

whoever: "Eva and her friends actually liberals? In UK terms, it's more likely her political home would be among the kind of Conservatives who live in London; broad-minded perhaps, but ultimately believers in high finance as social and spiritual provider"

If I had to categorize myself I would say that I'm very much of a liberal in social issues but I'm a conservative when it comes to economics or finances.

[Mark]

whoever: "After all, Keynes was a liberal."

One of the intellectual problems of Hungarian liberalism is that its view of capitalism and economics exists in a kind of fantasy world where the past seventy years of economic history and economic thought didn't happen. Therefore they make casual statements like unemployment is necessary for capitalism to function forgetting that many European societies had full employment during the post-war period, and indeed its most immediate neighbour, Austria had full employment right up to the mid-1980s. They believe - like the far-right of the US Republican party - that any attempt to interfere with the operation of the market is the first step to Communism. I realized this listening to Bokros talk about Bernanke's attempts to provide liquidity to the markets in the aftermath of the collapse of Lehmann Brothers. Let me quote him, so that you can see the extent of his free market extremism: "... this means that in a two-tier banking system the central bank is directly participating in lending to companies. This is socialism, because there was a one-tier banking system for the last time in Soviet era" (http://www.napi.hu/default.asp?cCenter=article.asp&nID=384249).

I'm sure that had Bernanke and Paulson been listening to Bokros they would have been surprised to learn they were Communists (goodness knows what Bokros thinks to Obama - if his view were publicized in the US he might find himself embraced by the likes of Rush Limbaugh). Whoever mentions the UK, and, even though there is no reason political labels should mean the same thing in different countries, it is true that if a political party even suggested introducing charges for visits to doctors or for hospital stays they would be considered so far to the political right to have literally fallen off the end of the political spectrum.

[Jano]

Peter Litványi: I also ask you to reconsider. Just because you don't agree with Eva doesn't mean that you should stop posting. Actually, that is the real reason to post unless you only like arguments where everybody just keeps on nodding. Mind you, those ones won't bring the world an inch forward. Again, what Eva writes is just her opinion, when she says that the third way is dead or that Milton Friedman is a genius then it's just her opinion you can argue against anytime.

While I don't believe in your third way, I pretty much despise Friedman and the Chicago school, especially for the arrogance they tried to gain exclusivity for their views If anybody who did economics must have realized that it's not a hard science at all (It's actually laughably not from a mathematician's point of view).

As to my humble opinion, I believe in the free market, but I also believe in the strong regulatory role of the state. Chaotic capitalism never did any good, and today's crisis was mainly due to the total liberalization of the market during Reagen and the Bushes (not stopped by Clinton either). Some of the regulations they abolished were installed during the new deal! The Inside Job is a terrific and pretty factual account of the way to the crisis and it's a very good watch for non-economists!

Paul: I think you're right, LMP is unlikely to draw Jobbik votes, as for the Jobbik voters, LMP is just SZDSZ 2.0. The two party's possible voter base is almost disjoint.

[Eva S. Balogh]

Jano, just for your information. I don't like Milton Freedman.

[Kirsten]

Jano: "I believe in the free market, but I also believe in the strong regulatory role of the state."

I am afraid you can have either but not both at the same time, or at least not in all areas. Perhaps it might be useful to identify areas where the market yields more desirable results (for a majority of people; these perhaps need less regulation) and areas where it does not (and therefore more regulation is acceptable without harming individual rights too much). There will not be universal agreement on it as it involves issues of income distribution. "Third way" (I understand this could be meant as reform communism of the 1970s and 1980s) is then just one type of market-regulation balance (and should the Hungarian experience be meant, I would like to remind that at that time a wave of foreign indebtedness set in...). Certainly other market-regulation balances could be found, without necessarily branding it "third way".

[Jano]

First of all I didn't want to post to this old Shiffer piece, sorry about that.

Kirsten: I beg to differ. Regulation is not a homogeneous binary thing. As you rightfully pointed out different areas have different regulatory needs. I don't think anybody would argue now that subprime mortgages should have been banned.

Perfect free market is a textbook notion. It's a beautiful mathematical model, but it exists within the world created by its assumptions and is at best a very rough approximation of real economies. Therefore the state is needed to exert control and prevent the extremities of this massive interacting system we call economy. Very few people argue that the New Deal, which was a massively non-liberal and invasive process, was harmful.

Of course you can do alternative economy policy in a stupid way (a la Matolcsy), disregarding empirical evidence and basic rules of logic, or you can do it in a way like Keynes and Roosevelt.